Details
| Original language | English |
|---|---|
| Article number | 100487 |
| Journal | Journal of Financial Markets |
| Volume | 47 |
| Early online date | 23 Jan 2020 |
| Publication status | Published - Jan 2020 |
Abstract
We examine long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the United States and that the degree of memory can be related to firm characteristics, such as market capitalization, book-to-market ratio, prior performance, and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates significant excess returns of 1.71% per annum. Consistent with theory, we find that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns.
Keywords
- Asset pricing, Long memory, Persistence, Volatility
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Journal of Financial Markets, Vol. 47, 100487, 01.2020.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - The memory of stock return volatility
T2 - Asset pricing implications
AU - Nguyen, Duc Binh Benno
AU - Prokopczuk, Marcel
AU - Sibbertsen, Philipp
N1 - Funding Information: We thank an anonymous referee, Fabian Hollstein, Frederik Middelhoff, Matthias Pelster as well as participants at the meeting of the German Finance Association (2017), the Auckland Finance Meeting (2017), the Annual Meeting of the Financial Management Association (2018), and several seminars for valuable comments.
PY - 2020/1
Y1 - 2020/1
N2 - We examine long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the United States and that the degree of memory can be related to firm characteristics, such as market capitalization, book-to-market ratio, prior performance, and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates significant excess returns of 1.71% per annum. Consistent with theory, we find that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns.
AB - We examine long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the United States and that the degree of memory can be related to firm characteristics, such as market capitalization, book-to-market ratio, prior performance, and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates significant excess returns of 1.71% per annum. Consistent with theory, we find that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns.
KW - Asset pricing
KW - Long memory
KW - Persistence
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=85060868167&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2019.01.002
DO - 10.1016/j.finmar.2019.01.002
M3 - Article
AN - SCOPUS:85060868167
VL - 47
JO - Journal of Financial Markets
JF - Journal of Financial Markets
SN - 1386-4181
M1 - 100487
ER -